Bill Text: TX SB1061 | 2015-2016 | 84th Legislature | Introduced
Bill Title: Relating to the regulation of secondary market transactions related to the business of life settlements; providing penalties; authorizing fees.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2015-03-16 - Referred to Business & Commerce [SB1061 Detail]
Download: Texas-2015-SB1061-Introduced.html
84R6810 PMO-D | ||
By: Hinojosa | S.B. No. 1061 |
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relating to the regulation of secondary market transactions related | ||
to the business of life settlements; providing penalties; | ||
authorizing fees. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Section 1111A.002, Insurance Code, is amended by | ||
amending Subdivisions (1), (2), (3), (7), (8), (9), (13), (18), and | ||
(20) and adding Subdivisions (1-A), (8-A), (25), (26), and (27) to | ||
read as follows: | ||
(1) "Accredited investor" has the meaning assigned by | ||
17 C.F.R. Section 230.501. | ||
(1-A) "Advertisement" means a written, electronic, or | ||
printed communication or a communication by means of a recorded | ||
telephone message or transmitted on radio, television, the | ||
Internet, or similar communications media, including film strips, | ||
motion pictures, and videos, published, disseminated, circulated, | ||
or placed directly before the public for the purpose of creating an | ||
interest in or inducing a person to: | ||
(A) purchase or sell, assign, devise, bequest, or | ||
transfer the death benefit or ownership of a life insurance policy | ||
or an interest in a life insurance policy under a life settlement | ||
contract; or | ||
(B) enter into a secondary market transaction. | ||
(2) "Broker" means a person who, on behalf of an owner | ||
and for a fee, commission, or other valuable consideration, offers | ||
or attempts to negotiate a life settlement contract between an | ||
owner and a provider or estimates life expectancies on behalf of an | ||
owner for a life settlement contract. A broker who offers or | ||
attempts to negotiate a life settlement contract represents only | ||
the owner and owes a fiduciary duty to the owner to act according to | ||
the owner's instructions, and in the best interest of the owner, | ||
notwithstanding the manner in which the broker is compensated. A | ||
broker does not include an attorney, certified public accountant, | ||
or financial planner retained in the type of practice customarily | ||
performed in a professional capacity to represent the owner whose | ||
compensation is not paid directly or indirectly by the provider or | ||
any other person, except the owner. | ||
(3) "Business of life settlements" means an activity | ||
involved in, but not limited to, offering to enter into, | ||
soliciting, negotiating, procuring, effectuating, monitoring, or | ||
tracking, of: | ||
(A) life settlement contracts; or | ||
(B) secondary market transactions. | ||
(7) "Fraudulent life settlement act" includes: | ||
(A) an act or omission committed by a person who, | ||
knowingly and with intent to defraud, for the purpose of depriving | ||
another of property or for pecuniary gain, commits, or permits an | ||
employee or an agent to engage in, acts including: | ||
(i) presenting, causing to be presented, or | ||
preparing with knowledge and belief that it will be presented to or | ||
by a provider, premium finance lender, broker, insurer, insurance | ||
agent, secondary provider, investor, or any other person, false | ||
material information, or concealing material information, as part | ||
of, in support of, or concerning a fact material to one or more of | ||
the following: | ||
(a) an application for the issuance of | ||
a life settlement contract or an insurance policy; | ||
(b) the underwriting of a life | ||
settlement contract or an insurance policy; | ||
(c) a claim for payment or benefit | ||
pursuant to a life settlement contract or an insurance policy; | ||
(d) premium paid on an insurance | ||
policy; | ||
(e) payment for and changes in | ||
ownership or beneficiary made in accordance with the terms of a life | ||
settlement contract or an insurance policy; | ||
(f) the reinstatement or conversion | ||
of an insurance policy; | ||
(g) in the solicitation, offer to | ||
enter into, or effectuation of a life settlement contract, [ |
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insurance policy, or a secondary market transaction; | ||
(h) the issuance of written evidence | ||
of an insurance policy, a life settlement contract, [ |
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a secondary market transaction [ |
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(i) an application for or the | ||
existence of or any payment related to a loan secured directly or | ||
indirectly by an interest in a life insurance policy; | ||
(ii) failing to disclose to the insurer, if | ||
the insurer has requested the disclosure, that the prospective | ||
insured has undergone a life expectancy evaluation by any person or | ||
entity other than the insurer or its authorized representatives in | ||
connection with the issuance of the policy; or | ||
(iii) employing a device, scheme, or | ||
artifice to defraud in the business of life settlements; and | ||
(B) acts or omissions in the furtherance of a | ||
fraud or to prevent the detection of a fraud, or acts or omissions | ||
that permit an employee or an agent to: | ||
(i) remove, conceal, alter, destroy, or | ||
sequester from the commissioner the assets or records of a license | ||
holder or another person engaged in the business of life | ||
settlements; | ||
(ii) misrepresent or conceal the financial | ||
condition of a license holder, financing entity, insurer, investor, | ||
or other person; | ||
(iii) transact the business of life | ||
settlements in violation of laws requiring a license, certificate | ||
of authority, or other legal authority for the transaction of the | ||
business of life settlements; | ||
(iv) file with the commissioner or the | ||
chief insurance regulatory official of another jurisdiction a | ||
document containing false information or concealing information | ||
about a material fact; | ||
(v) engage in embezzlement, theft, | ||
misappropriation, or conversion of monies, funds, premiums, | ||
credits, or other property of a provider, insurer, insured, owner, | ||
insurance policy owner, secondary provider, investor, or any other | ||
person engaged in the business of life settlements or insurance; | ||
(vi) knowingly and with intent to defraud, | ||
enter into, broker, or otherwise deal in a life settlement | ||
contract, the subject of which is a life insurance policy, or in a | ||
secondary market transaction related to a life insurance policy, if | ||
the policy [ |
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concerning any fact material to the policy or by concealing that | ||
fact, for the purpose of misleading another, or providing | ||
information concerning any fact material to the policy, if the | ||
owner or the owner's agent intended to defraud the policy's issuer; | ||
(vii) attempt to commit, assist, aid or | ||
abet in the commission of, or engage in conspiracy to commit the | ||
acts or omissions specified in this paragraph; or | ||
(viii) misrepresent the state of residence | ||
of an owner, secondary provider, or investor to be a state or | ||
jurisdiction that does not have a law substantially similar to this | ||
chapter with respect to the interest of the owner, secondary | ||
provider, or investor, as applicable, for the purpose of evading or | ||
avoiding the provisions of this chapter. | ||
(8) "Insured" means a person covered under the policy | ||
being considered for sale in a life settlement contract or related | ||
to a secondary market transaction. | ||
(8-A) "Investor" means, except to the extent otherwise | ||
clear from context, a person who is offered or obtains an interest | ||
in a life settlement contract from a secondary provider in a | ||
secondary market transaction. | ||
(9) "Life expectancy" means the arithmetic mean of the | ||
number of months the insured under the life insurance policy to be | ||
settled or related to a secondary market transaction can be | ||
expected to live [ |
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data. | ||
(13) "Owner" means the owner of a life insurance | ||
policy or a certificate holder under a group policy, with or without | ||
a terminal illness, who enters or seeks to enter into a life | ||
settlement contract. In this chapter, the term "owner" is not | ||
limited to an owner of a life insurance policy or a certificate | ||
holder under a group policy that insures the life of an individual | ||
with a terminal or chronic illness or condition except as | ||
specifically provided. The term does not include: | ||
(A) a provider or other license holder under this | ||
chapter; | ||
(B) a qualified institutional buyer as defined by | ||
17 C.F.R. Section 230.144A, as amended; | ||
(C) a financing entity; | ||
(D) a special purpose entity; [ |
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(E) a related provider trust; or | ||
(F) any person who holds an interest in a life | ||
settlement contract as a result of a secondary market transaction. | ||
(18) "Provider" means a person, other than an owner, | ||
who enters into or effectuates a life settlement contract with an | ||
owner. The term does not include: | ||
(A) a bank, savings bank, savings and loan | ||
association, or credit union; | ||
(B) a licensed lending institution or creditor or | ||
secured party pursuant to a premium finance loan agreement that | ||
takes an assignment of a life insurance policy or certificate | ||
issued pursuant to a group life insurance policy as collateral for a | ||
loan; | ||
(C) the insurer of a life insurance policy or | ||
rider to the extent of providing accelerated death benefits or | ||
riders under Subchapter B, Chapter 1111, or cash surrender value; | ||
(D) an individual who enters into or effectuates | ||
not more than one agreement in a calendar year for the transfer of a | ||
life insurance policy or certificate issued pursuant to a group | ||
life insurance policy, for compensation or anything of value less | ||
than the expected death benefit payable under the policy; | ||
(E) a purchaser; | ||
(F) any authorized or eligible insurer that | ||
provides stop loss coverage to a provider, purchaser, financing | ||
entity, special purpose entity, or related provider trust; | ||
(G) a financing entity; | ||
(H) a special purpose entity; | ||
(I) a related provider trust; | ||
(J) a broker; [ |
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(K) an accredited investor or qualified | ||
institutional buyer as those terms are defined by 17 C.F.R. | ||
Sections 230.501 and 230.144A, respectively, as amended, who | ||
purchases a life insurance [ |
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issued pursuant to a life insurance policy from a provider or a | ||
secondary provider; or | ||
(L) a secondary provider. | ||
(20) "Purchaser" means a person who, in a transaction | ||
other than a secondary market transaction, pays compensation or | ||
anything of value as consideration for a beneficial interest in a | ||
trust that is vested with, or for the assignment, transfer, or sale | ||
of, an ownership or other interest in a life insurance policy or a | ||
certificate issued pursuant to a group life insurance policy that | ||
has been the subject of a life settlement contract. | ||
(25) "Prospectus" means a written, electronic, or | ||
printed communication or a communication by other means published, | ||
disseminated, circulated, or placed before an investor for the | ||
purpose of creating an interest in or inducing an investor to | ||
purchase, sell, or assign an ownership interest in a life | ||
settlement contract. | ||
(26) "Secondary market transaction" means to offer to | ||
sell an interest in a life settlement contract or to solicit, | ||
negotiate, procure, effectuate, monitor, track the sale of, or sell | ||
an interest in a life settlement contract. | ||
(27) "Secondary provider" means a person, other than | ||
an investor, offering to enter into a secondary market transaction | ||
whether for a fee, commission, or other valuable consideration or | ||
otherwise. | ||
SECTION 2. Section 1111A.003, Insurance Code, is amended by | ||
adding Subsections (a-1), (a-2), (a-3), (a-4), and (e-1) and | ||
amending Subsections (b), (c), (g), (j), (m), (n), and (o) to read | ||
as follows: | ||
(a-1) A person, wherever located, may not act as a secondary | ||
provider in a transaction involving an investor who is a resident of | ||
this state unless the person holds a license from the department | ||
under this chapter. | ||
(a-2) A person may not act as a secondary provider in this | ||
state unless the person holds a license from the department under | ||
this chapter. | ||
(a-3) Except as provided by Subsection (a-4), a person may | ||
not provide a life expectancy estimate in connection with a life | ||
settlement or secondary market transaction in which a party is a | ||
resident of this state unless the person holds a license as a life | ||
expectancy estimator from the department under this chapter. | ||
(a-4) Subsection (a-3) does not require additional | ||
licensing of a licensed broker acting as a life expectancy | ||
estimator only on behalf of an owner. | ||
(b) An application for a provider, [ |
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provider, or life expectancy estimator license must be made to the | ||
department by the applicant on a form prescribed by the | ||
commissioner. The application must be accompanied by a fee in an | ||
amount established by the commissioner by rule. The license and | ||
renewal fees for a provider, secondary provider, or life expectancy | ||
estimator license must be reasonable and the license and renewal | ||
fees for a broker license may not exceed those established for an | ||
insurance agent, as otherwise provided by this chapter. | ||
(c) A person who has been licensed as a life insurance agent | ||
in this state or the person's home state for at least one year and is | ||
licensed as a nonresident agent in this state meets the licensing | ||
requirements of this section and may operate as a broker, but may | ||
not act as a provider or secondary provider without holding a | ||
license under this chapter. | ||
(e-1) An insurer that issued a policy related to a secondary | ||
market transaction is not responsible for any act or omission of a | ||
secondary provider arising out of or in connection with the | ||
transaction, unless the insurer receives compensation from the | ||
secondary provider in connection with the transaction. | ||
(g) A license expires on the second anniversary of the date | ||
of issuance. A license holder may renew the license on payment of a | ||
renewal fee. As specified by Subsection (b), the renewal fee for a | ||
provider, secondary provider, or life expectancy estimator license | ||
may not exceed a reasonable fee. | ||
(j) After the filing of an application and the payment of | ||
the license fee, the commissioner shall investigate each applicant | ||
and may issue a license if the commissioner finds that the | ||
applicant: | ||
(1) if a provider or secondary provider, has provided | ||
a detailed plan of operation; | ||
(2) is competent and trustworthy and intends to | ||
transact business in good faith; | ||
(3) has a good business reputation and has had | ||
experience, training, or education to qualify in the business for | ||
which the license is applied; | ||
(4) if the applicant is a legal entity, is formed or | ||
organized under the laws of this state or is a foreign legal entity | ||
authorized to transact business in this state, or provides a | ||
certificate of good standing from the state of its domicile; and | ||
(5) if a broker, provider, or secondary provider, has | ||
provided to the commissioner an antifraud plan that meets the | ||
requirements of Section 1111A.022 and includes: | ||
(A) a description of the procedures for detecting | ||
and investigating possible fraudulent acts and procedures for | ||
resolving material inconsistencies between medical records and | ||
insurance applications or information provided by a provider, | ||
secondary provider, life expectancy estimator, or other person in | ||
connection with a secondary market transaction; | ||
(B) a description of the procedures for reporting | ||
fraudulent insurance or life settlement acts to the commissioner; | ||
(C) a description of the plan for antifraud | ||
education and training of its underwriters and other personnel; and | ||
(D) a written description or chart outlining the | ||
arrangement of the antifraud personnel who are responsible for the | ||
investigation and reporting of possible fraudulent insurance or | ||
life settlement acts and the investigation of unresolved material | ||
inconsistencies between medical records and insurance applications | ||
or information provided by a provider, secondary provider, life | ||
expectancy estimator, or other person in connection with a | ||
secondary market transaction. | ||
(m) A provider or secondary provider may not allow any other | ||
person to perform the functions of a broker, secondary provider, or | ||
life expectancy estimator unless the person holds a current, valid | ||
license as a broker, secondary provider, or life expectancy | ||
estimator, as applicable, and as provided in this section. | ||
(n) A broker may not allow any person to perform the | ||
functions of a provider, secondary provider, or life expectancy | ||
estimator unless the person holds a current, valid license as a | ||
provider, secondary provider, or life expectancy estimator, as | ||
applicable, and as provided in this section. | ||
(o) A provider, [ |
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expectancy estimator shall provide to the commissioner new or | ||
revised information about officers, stockholders described by | ||
Subsection (h), partners, directors, members, or designated | ||
employees within 30 days of the change. | ||
SECTION 3. Section 1111A.004(a), Insurance Code, is amended | ||
to read as follows: | ||
(a) The commissioner may suspend, revoke, or refuse to renew | ||
the license of a license holder if the commissioner finds that: | ||
(1) there was a material misrepresentation in the | ||
application for the license; | ||
(2) the license holder or an officer, partner, member, | ||
or director of the license holder has been guilty of fraudulent or | ||
dishonest practices, is subject to a final administrative action, | ||
or is otherwise shown to be untrustworthy or incompetent to act as a | ||
license holder; | ||
(3) the license holder is a provider or secondary | ||
provider and demonstrates a pattern of unreasonably withholding | ||
payments to policy owners or investors, as applicable; | ||
(4) the license holder no longer meets the | ||
requirements for initial licensure; | ||
(5) the license holder or any officer, partner, | ||
member, or director of the license holder has been convicted of a | ||
felony, or of any misdemeanor with respect to which criminal fraud | ||
is an element, or has pleaded guilty or nolo contendere with respect | ||
to a felony or a misdemeanor with respect to which criminal fraud or | ||
moral turpitude is an element, regardless of whether a judgment of | ||
conviction has been entered by the court; | ||
(6) the license holder is a provider and has entered | ||
into a life settlement contract using a form that has not been | ||
approved under this chapter; | ||
(7) the license holder is a secondary provider and has | ||
entered into a secondary market transaction using a form or | ||
prospectus that has not been approved under this chapter; | ||
(8) the license holder is a provider and has failed to | ||
honor contractual obligations in a life settlement contract; | ||
(9) [ |
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assigned, transferred, or pledged a settled policy to a person | ||
other than a provider or secondary provider licensed in this state, | ||
a purchaser, an accredited investor or qualified institutional | ||
buyer as defined respectively in 17 C.F.R. Sections 230.501 and | ||
[ |
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purpose entity, or a related provider trust; [ |
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(10) [ |
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member, or key management personnel of the license holder has | ||
violated this chapter; or | ||
(11) the license holder is a secondary provider and | ||
has entered into a secondary market transaction with a person who is | ||
not an accredited investor. | ||
SECTION 4. The heading to Section 1111A.005, Insurance | ||
Code, is amended to read as follows: | ||
Sec. 1111A.005. REQUIREMENTS FOR CONTRACT FORMS, | ||
DISCLOSURE AND PROSPECTUS FORMS, AND ADVERTISEMENTS. | ||
SECTION 5. Section 1111A.005, Insurance Code, is amended by | ||
amending Subsection (b) and adding Subsection (e) to read as | ||
follows: | ||
(b) An insurer may not, as a condition of responding to a | ||
request for verification of coverage or in connection with the | ||
transfer of a policy pursuant to a life settlement contract or | ||
secondary market transaction, require that the owner, insured, | ||
provider, [ |
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form, disclosure, consent, waiver, or acknowledgment that has not | ||
been expressly approved by the commissioner for use in connection | ||
with life settlement contracts or secondary market transactions, as | ||
applicable. | ||
(e) A person may not use a prospectus or any other form in | ||
connection with a secondary market transaction before the 31st day | ||
after the date the form is filed with the commissioner. The | ||
commissioner shall disapprove a form filed under this subsection | ||
if, in the commissioner's opinion, the form fails to meet the | ||
applicable requirements of Sections 1111A.011, 1111A.012, | ||
1111A.014, and 1111A.023(d) or is unreasonable, contrary to the | ||
interests of the public, or otherwise misleading or unfair. A form | ||
filed under this subsection that is not affirmatively approved or | ||
disapproved in a written order of the commissioner on or before the | ||
30th day the form is filed is considered approved. | ||
SECTION 6. Section 1111A.006, Insurance Code, is amended by | ||
adding Subsections (a-1), (a-2), and (b-1) and amending Subsections | ||
(c), (d), and (e) to read as follows: | ||
(a-1) Each secondary provider shall file with the | ||
commissioner not later than March 1 of each year an annual statement | ||
containing the information that the commissioner prescribes by | ||
rule. In addition to any other requirements, the annual statement | ||
must specify for life settlement contracts involved in secondary | ||
market transactions occurring during the preceding calendar year: | ||
(1) the total number of related purchased policies; | ||
(2) the aggregate face amount of the policies; | ||
(3) the aggregate premium amount of the policies; | ||
(4) the premium payment periods for the policies; and | ||
(5) the aggregate life proceeds paid to the secondary | ||
provider. | ||
(a-2) An annual statement under Subsection (a-1) must also | ||
include the names of each life expectancy estimator and escrow | ||
agent, if any, employed by the secondary provider with respect to a | ||
secondary market transaction. | ||
(b-1) The information required under Subsections (a-1) and | ||
(a-2) is limited to only those secondary market transactions in | ||
which the secondary provider or the investor is a resident of this | ||
state and may not include individual transaction data regarding the | ||
business of life settlements or information if there is a | ||
reasonable basis to find that the information could be used to | ||
identify the owner or the insured. | ||
(c) A provider or secondary provider that wilfully fails to | ||
file an annual statement as required in this section, or wilfully | ||
fails to reply not later than the 30th day after the date the | ||
provider or secondary provider receives a written inquiry from the | ||
department about the filing of the annual statement, shall, in | ||
addition to other penalties provided by this chapter, after notice | ||
and opportunity for hearing be subject to a penalty of up to $250 | ||
for each day of delay, not to exceed $25,000 in the aggregate, for | ||
the failure to file or respond. | ||
(d) Except as otherwise allowed or required by law, a | ||
provider, broker, insurance company, insurance agent, information | ||
bureau, rating agency or company, secondary provider, investor, or | ||
any other person with actual knowledge of an insured's identity, | ||
may not disclose the identity of an insured or information that | ||
there is a reasonable basis to believe could be used to identify the | ||
insured or the insured's financial or medical information to any | ||
other person unless the disclosure is: | ||
(1) necessary to effect a life settlement contract | ||
between the owner and a provider or a secondary market transaction | ||
and the owner and insured have provided prior written consent to the | ||
disclosure; | ||
(2) necessary to effectuate the sale of a life | ||
settlement contract, or interests in the contract, including a | ||
secondary market transaction, as an investment, provided the sale | ||
is conducted in accordance with this chapter and applicable state | ||
and federal securities law and provided further that the owner and | ||
the insured have both provided prior written consent to the | ||
disclosure; | ||
(3) provided in response to an investigation or | ||
examination by the commissioner or another governmental officer or | ||
agency or under Section 1111A.018; | ||
(4) a term or condition of the transfer of a policy by | ||
one provider to another licensed provider, in which case the | ||
receiving provider shall comply with the confidentiality | ||
requirements of this subsection; | ||
(5) necessary to allow the provider, [ |
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secondary provider or the provider's, [ |
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provider's authorized representative to make contact for the | ||
purpose of determining health status provided that in this | ||
subdivision, authorized representative does not include a person | ||
who has or may have a financial interest in the settlement contract | ||
or secondary market transaction other than a provider, secondary | ||
provider, licensed broker, financing entity, related provider | ||
trust, or special purpose entity and that the provider, [ |
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broker, or secondary provider requires the authorized | ||
representative to agree in writing to adhere to the privacy | ||
provisions of this chapter; or | ||
(6) required to purchase stop loss coverage. | ||
(e) Nonpublic personal information solicited or obtained in | ||
connection with a proposed or actual life settlement contract or | ||
secondary market transaction is subject to the provisions | ||
applicable to financial institutions under the federal | ||
Gramm-Leach-Bliley Act (Pub. L. No. 106-102), and any other state | ||
and federal laws relating to confidentiality of nonpublic personal | ||
information. | ||
SECTION 7. The heading to Section 1111A.011, Insurance | ||
Code, is amended to read as follows: | ||
Sec. 1111A.011. ADVERTISING AND PROSPECTUSES. | ||
SECTION 8. Section 1111A.011, Insurance Code, is amended by | ||
adding Subsection (a-1) and amending Subsection (b) to read as | ||
follows: | ||
(a-1) A secondary provider licensed under this chapter may | ||
conduct or participate in an advertisement or deliver a prospectus | ||
in this state. The advertisement or prospectus must comply with | ||
all advertising and marketing laws under Chapter 541 and rules | ||
adopted by the commissioner that are applicable to life insurers or | ||
to license holders under this chapter. | ||
(b) Advertisements and prospectuses shall be accurate, | ||
truthful, and not misleading in fact or by implication. | ||
SECTION 9. Section 1111A.012(a), Insurance Code, is amended | ||
to read as follows: | ||
(a) The broker, or the provider if no broker is involved in | ||
the application, shall provide in writing, in a separate document | ||
that is signed by the owner, the following information to the owner | ||
not later than the date of application for a life settlement | ||
contract: | ||
(1) the fact that possible alternatives to life | ||
settlement contracts exist, including accelerated benefits offered | ||
by the issuer of the life insurance policy; | ||
(2) the fact that some or all of the proceeds of a life | ||
settlement contract may be taxable and that assistance should be | ||
sought from a professional tax advisor; | ||
(3) the fact that the proceeds from a life settlement | ||
contract could be subject to the claims of creditors; | ||
(4) the fact that receipt of proceeds from a life | ||
settlement contract may adversely affect the recipients' | ||
eligibility for public assistance or other government benefits or | ||
entitlements and that advice should be obtained from the | ||
appropriate agency; | ||
(5) the fact that the owner has a right to terminate a | ||
life settlement contract within 15 days of the date the contract is | ||
executed by all parties and the owner has received the disclosures | ||
described in this section, that rescission, if exercised by the | ||
owner, is effective only if both notice of the rescission is given | ||
and the owner repays all proceeds and any premiums, loans, and loan | ||
interest paid on account of the provider during the rescission | ||
period, and that if the insured dies during the rescission period, | ||
the contract is considered rescinded subject to repayment by the | ||
owner or the owner's estate of all proceeds and any premiums, loans, | ||
and loan interest to the provider; | ||
(6) the fact that proceeds will be sent to the owner | ||
within three business days after the provider has received the | ||
insurer or group administrator's acknowledgement that ownership of | ||
the policy or interest in the certificate has been transferred and | ||
the beneficiary has been designated in accordance with the terms of | ||
the life settlement contract; | ||
(7) the fact that entering into a life settlement | ||
contract may cause the owner to forfeit other rights or benefits, | ||
including conversion rights and waiver of premium benefits that may | ||
exist under the policy or certificate of a group policy, and that | ||
assistance should be sought from a professional financial advisor; | ||
(8) the amount and method of calculating the | ||
compensation, including anything of value, paid or given, or to be | ||
paid or given, to the broker, or any other person acting for the | ||
owner in connection with the transaction; | ||
(9) the date by which the funds will be available to | ||
the owner and the identity of the transmitter of the funds; | ||
(10) the fact that the commissioner requires delivery | ||
of a buyer's guide or a similar consumer advisory package in the | ||
form prescribed by the commissioner to owners during the | ||
solicitation process; | ||
(11) the following language: "All medical, | ||
financial, or personal information solicited or obtained by a | ||
provider or broker about an insured, including the insured's | ||
identity or the identity of family members or a spouse or a | ||
significant other, may be disclosed as necessary to effect the life | ||
settlement contract between the owner and provider. If you are | ||
asked to provide this information, you will be asked to consent to | ||
the disclosure. The information may be provided to someone who | ||
buys the policy or provides funds for the purchase. You may be | ||
asked to renew your permission to share information every two | ||
years."; | ||
(12) the fact that the commissioner requires providers | ||
and brokers to print separate signed fraud warnings on the | ||
applications and on the life settlement contracts as follows: "Any | ||
person who knowingly presents false information in an application | ||
for insurance or a life settlement contract is guilty of a crime and | ||
may be subject to fines and confinement in prison."; | ||
(13) the fact that the insured may be contacted by | ||
either the provider or broker or an authorized representative of | ||
the provider or broker for the purpose of determining the insured's | ||
health status or to verify the insured's address and that this | ||
contact is limited to once every three months if the insured has a | ||
life expectancy of more than one year, and not more than once per | ||
month if the insured has a life expectancy of one year or less; | ||
(14) the affiliation, if any, between the provider and | ||
the issuer of the insurance policy to be settled; | ||
(15) that a broker represents exclusively the owner, | ||
and not the insurer or the provider or any other person, and owes a | ||
fiduciary duty to the owner, including a duty to act according to | ||
the owner's instructions and in the best interest of the owner; | ||
(16) the name, address, and telephone number of the | ||
provider; | ||
(17) the name, business address, and telephone number | ||
of the independent third party escrow agent, and the fact that the | ||
owner may inspect or receive copies of the relevant escrow or trust | ||
agreements or documents; [ |
||
(18) the fact that a change of ownership could in the | ||
future limit the insured's ability to purchase future insurance on | ||
the insured's life because there is a limit to how much coverage | ||
insurers will issue on one life; and | ||
(19) the fact that the purchased policy or life | ||
settlement contract may be the subject of a secondary market | ||
transaction. | ||
SECTION 10. Chapter 1111A, Insurance Code, is amended by | ||
adding Sections 1111A.0135 and 1111A.0136 to read as follows: | ||
Sec. 1111A.0135. DISCLOSURES TO INVESTORS. (a) A | ||
secondary provider shall provide to investors, in a separate | ||
document that is signed by the investors, written disclosures as | ||
required by rule adopted by the commissioner. | ||
(b) The disclosures described by Subsection (a) must be | ||
provided to the investor not less than seven days before the date | ||
the secondary market transaction closes. | ||
(c) The failure to provide the written disclosures | ||
described by Subsection (a) is an unfair method of competition or an | ||
unfair or deceptive act or practice. | ||
Sec. 1111A.0136. LIMITATION ON SECONDARY MARKET | ||
TRANSACTIONS. A secondary provider may enter into a secondary | ||
market transaction only with an accredited investor. | ||
SECTION 11. Section 1111A.014, Insurance Code, is amended | ||
by amending Subsections (a), (b), (c), and (d) and adding | ||
Subsection (g-1) to read as follows: | ||
(a) Before entering into a life settlement contract with an | ||
owner of a policy with respect to which the insured is terminally or | ||
chronically ill, the provider must obtain: | ||
(1) if the owner is the insured, a written statement | ||
from a licensed attending physician that the owner is of sound mind | ||
and under no constraint or undue influence to enter into a | ||
settlement contract; and | ||
(2) a document in which the insured consents to the | ||
release of medical records to a provider, settlement broker, [ |
||
insurance agent, secondary provider, or investor and, if the policy | ||
was issued less than two years after the date of application for a | ||
settlement contract, to the insurance company that issued the | ||
policy. | ||
(b) An insurer shall respond to a request for verification | ||
of coverage submitted by a provider, settlement broker, [ |
||
insurance agent, secondary provider, or investor not later than the | ||
30th calendar day after the date the request is received. The | ||
request for verification of coverage must be made on a form approved | ||
by the commissioner. The insurer shall complete and issue the | ||
verification of coverage or indicate in which respects the insurer | ||
is unable to respond. In the response, the insurer shall indicate | ||
whether at the time of the response, based on the medical evidence | ||
and documents provided, the insurer intends to pursue an | ||
investigation about the validity of the insurance contract. | ||
(c) On or before the date of execution of the life | ||
settlement contract, the provider shall obtain a witnessed document | ||
in which the owner consents to the settlement contract, represents | ||
that the owner has a full and complete understanding of the | ||
settlement contract and of the benefits of the policy, acknowledges | ||
that the owner is entering into the settlement contract freely and | ||
voluntarily, acknowledges that the purchased policy or contract may | ||
be the subject of a secondary market transaction, and, for persons | ||
with a terminal or chronic illness or condition, acknowledges that | ||
the insured has a terminal or chronic illness and that the terminal | ||
or chronic illness or condition was diagnosed after the policy was | ||
issued. | ||
(d) The insurer may not unreasonably delay effecting change | ||
of ownership or beneficiary with any life settlement contract or | ||
secondary market transaction lawfully entered into in this state or | ||
with a resident of this state. | ||
(g-1) Not later than the 20th day after the date that a | ||
secondary market transaction closes, the secondary provider shall | ||
give written notice to the insurer that issued the purchased policy | ||
that is subject to a life settlement contract that the contract has | ||
become subject to a secondary market transaction. The notice shall | ||
be accompanied by the documents required by Section 1111A.0135. | ||
SECTION 12. Sections 1111A.015(a) and (b), Insurance Code, | ||
are amended to read as follows: | ||
(a) The commissioner may adopt rules implementing this | ||
chapter and regulating the activities and relationships of | ||
providers, brokers, insurers, secondary providers, investors, and | ||
their authorized representatives. | ||
(b) The commissioner may not adopt a rule establishing a | ||
price or fee for the sale or purchase of a life settlement contract | ||
or for a secondary market transaction. This subsection does not | ||
prohibit the commissioner from adopting a rule relating to an | ||
unjust price or fee for the sale or purchase of a life settlement | ||
contract or for a secondary market transaction. | ||
SECTION 13. Section 1111A.016, Insurance Code, is amended | ||
by adding Subsection (d) to read as follows: | ||
(d) A secondary provider licensed in this state who enters | ||
into a secondary market transaction with an investor who is a | ||
resident of another state that has enacted statutes or adopted | ||
rules governing secondary market transactions is governed with | ||
respect to that secondary market transaction by the statutes and | ||
rules of the investor's state of residence. If the state in which | ||
the investor is a resident has not enacted statutes or adopted rules | ||
governing secondary market transactions, the secondary provider | ||
shall give the investor notice that the secondary provider: | ||
(1) is governed by the statutes and rules of this | ||
state; and | ||
(2) must maintain all records required by this | ||
chapter. | ||
SECTION 14. Section 1111A.017(a), Insurance Code, is | ||
amended to read as follows: | ||
(a) A person may not: | ||
(1) enter into a life settlement contract or a | ||
secondary market transaction if the person knows or reasonably | ||
should have known that: | ||
(A) the life insurance policy was obtained by | ||
means of a false, deceptive, or misleading application for the life | ||
insurance policy; or | ||
(B) the purchased policy or life settlement | ||
contract was obtained by means of a false, deceptive, or misleading | ||
act or practice; | ||
(2) engage in a transaction, practice, or course of | ||
business if the person knows or reasonably should have known that | ||
the intent of engaging in the transaction, practice, or course of | ||
business is to avoid the notice requirements of this chapter; | ||
(3) engage in a fraudulent act or practice in | ||
connection with: | ||
(A) a transaction relating to any settlement | ||
involving an owner who is a resident of this state; or | ||
(B) a secondary market transaction involving a | ||
secondary provider or investor who is a resident of this state; | ||
(4) issue, solicit, market, or otherwise promote the | ||
purchase of an insurance policy for the purpose of, or with an | ||
emphasis on, settling the policy; | ||
(5) if providing premium financing, receive any | ||
proceeds, fee, or other consideration from the policy or owner in | ||
addition to the amounts required to pay principal, interest, and | ||
any reasonable costs or expenses incurred by the lender or borrower | ||
in connection with the premium finance agreement, except in event | ||
of a default, unless either the default on the loan or transfer of | ||
the policy occurs pursuant to an agreement or understanding with | ||
any other person for the purpose of evading regulation under this | ||
chapter; | ||
(6) with respect to any settlement contract or | ||
insurance policy and to a broker, knowingly solicit an offer from, | ||
effectuate a life settlement contract with, or make a sale to any | ||
provider, financing entity, or related provider trust that is | ||
controlling, controlled by, or under common control with the broker | ||
unless the relationship is fully disclosed to the owner; | ||
(7) with respect to any life settlement contract or | ||
insurance policy and a provider, knowingly enter into a life | ||
settlement contract with an owner if, in connection with the life | ||
settlement contract, anything of value will be paid to a broker that | ||
is controlling, controlled by, or under common control with the | ||
provider or the financing entity or related provider trust that is | ||
involved in such settlement contract, unless the relationship is | ||
fully disclosed to the owner; | ||
(8) with respect to a provider, enter into a life | ||
settlement contract unless the life settlement promotional, | ||
advertising, and marketing materials, as may be prescribed by rule, | ||
have been filed with the commissioner, provided that in no event may | ||
any marketing materials expressly reference that the insurance is | ||
free for any period of time; [ |
||
(9) with respect to any life insurance agent, | ||
insurance company, broker, or provider, make any statement or | ||
representation to the applicant or policyholder in connection with | ||
the sale or financing of a life insurance policy to the effect that | ||
the insurance is free or without cost to the policyholder for any | ||
period of time unless provided in the policy; or | ||
(10) with respect to a secondary provider: | ||
(A) enter into a secondary market transaction | ||
unless the prospectus and forms, as required by statute or may be | ||
prescribed by rule, have been filed with or approved by the | ||
commissioner, as applicable; or | ||
(B) make any statement or representation to an | ||
investor in connection with a secondary market transaction that is | ||
false, misleading, or deceptive. | ||
SECTION 15. Section 1111A.018(d), Insurance Code, is | ||
amended to read as follows: | ||
(d) A life settlement contract, [ |
||
life settlement contract, a purchased policy, a prospectus, and a | ||
contract in a secondary market transaction, regardless of the form | ||
of transmission, must contain the following, or a substantially | ||
similar, statement: "Any person who knowingly presents false | ||
information in an application for insurance, [ |
||
contract, a purchased policy, a prospectus, or a contract in a | ||
secondary market transaction is guilty of a crime and may be subject | ||
to fines and confinement in prison." | ||
SECTION 16. Section 1111A.021, Insurance Code, is amended | ||
to read as follows: | ||
Sec. 1111A.021. OTHER LAW ENFORCEMENT OR REGULATORY | ||
AUTHORITY. (a) This chapter does not: | ||
(1) except as provided by Subsection (b) preempt the | ||
authority or relieve the duty of another law enforcement or | ||
regulatory agency to investigate, examine, and prosecute a | ||
suspected violation of law; | ||
(2) except as provided by Subsection (b) preempt, | ||
supersede, or limit any provision of any state securities law or any | ||
rule, order, or notice issued under the law; | ||
(3) prevent or prohibit a person from disclosing | ||
voluntarily information concerning life settlement fraud or fraud | ||
in a secondary market transaction to a law enforcement or | ||
regulatory agency other than the department; or | ||
(4) limit the powers granted by the laws of this state | ||
to the commissioner or an insurance fraud unit to investigate and | ||
examine a possible violation of law and to take appropriate action | ||
against wrongdoers. | ||
(b) A secondary market transaction deemed not to involve a | ||
public offering under 17 C.F.R. Section 230.506 under the | ||
Securities Act of 1933 (15 U.S.C. Section 77a et seq.) may not be | ||
considered a security under The Securities Act (Article 581-1 et | ||
seq., Vernon's Texas Civil Statutes). | ||
SECTION 17. Section 1111A.022(a), Insurance Code, is | ||
amended to read as follows: | ||
(a) A provider, [ |
||
implement antifraud initiatives reasonably calculated to detect, | ||
prosecute, and prevent fraudulent life settlement acts. At the | ||
discretion of the commissioner, the commissioner may order, or a | ||
license holder may request and the commissioner may grant, a | ||
modification of the following required initiatives as necessary to | ||
ensure an effective antifraud program. A modification granted | ||
under this section may be more or less restrictive than the required | ||
initiatives so long as the modification may reasonably be expected | ||
to accomplish the purpose of this section. Antifraud initiatives | ||
must include: | ||
(1) fraud investigators, who may be provider, | ||
secondary provider, or broker employees or independent | ||
contractors; and | ||
(2) an antifraud plan, which must be submitted to the | ||
commissioner and must include: | ||
(A) a description of the procedures for detecting | ||
and investigating possible fraudulent life settlement acts and | ||
procedures for resolving material inconsistencies between medical | ||
records and insurance applications or information provided by a | ||
provider, secondary provider, life expectancy estimator, or other | ||
person in connection with a secondary market transaction; | ||
(B) a description of the procedures for reporting | ||
possible fraudulent life settlement acts to the commissioner; | ||
(C) a description of the plan for antifraud | ||
education and training of underwriters and other personnel; and | ||
(D) a description or chart outlining the | ||
organizational arrangement of the antifraud personnel who are | ||
responsible for the investigation and reporting of possible | ||
fraudulent life settlement acts and investigating unresolved | ||
material inconsistencies between medical records and insurance | ||
applications. | ||
SECTION 18. Section 1111A.023(d), Insurance Code, is | ||
amended to read as follows: | ||
(d) The provisions of this chapter may not be waived by | ||
agreement. No choice of law provision may prevent the application | ||
of this chapter to any life settlement or secondary market | ||
transaction. | ||
SECTION 19. Section 1111A.024(a), Insurance Code, is | ||
amended to read as follows: | ||
(a) It is a violation of this chapter for any person, | ||
provider, broker, secondary provider, or any other party related to | ||
the business of life settlements to commit a fraudulent life | ||
settlement act. | ||
SECTION 20. Section 1111A.026, Insurance Code, is amended | ||
to read as follows: | ||
Sec. 1111A.026. APPLICABILITY OF CERTAIN PROVISIONS TO | ||
CERTAIN LIFE EXPECTANCY ESTIMATORS. (a) The following provisions | ||
do not apply to a broker who acts solely as a life expectancy | ||
estimator on behalf of an owner: | ||
(1) Section 1111A.003(p); | ||
(2) Section 1111A.012; and | ||
(3) Sections 1111A.014(l) and (m). | ||
(b) The commissioner may exempt a broker who acts only as a | ||
life expectancy estimator on behalf of an owner from other | ||
provisions of this chapter if the commissioner finds that the | ||
application of those provisions to the broker is not necessary for | ||
the public welfare. | ||
SECTION 21. A secondary provider or life expectancy | ||
estimator other than a broker lawfully transacting business in this | ||
state before the effective date of this Act may continue to do so | ||
pending approval or disapproval of the person's application for a | ||
license as long as the application is filed with the commissioner of | ||
insurance not later than the 30th day after the date of the | ||
publication by the commissioner of an application form and | ||
instructions for licensure of secondary providers and life | ||
expectancy estimators. If the publication of the application form | ||
and instructions is before the effective date of this Act, then the | ||
application must be filed not later than the 30th day after the | ||
effective date of this Act and the applicant may use in connection | ||
with a secondary market transaction any form or prospectus that has | ||
been filed with the commissioner pending approval or disapproval, | ||
provided that the form and prospectus are otherwise in compliance | ||
with the provisions of this Act. A person transacting business in | ||
this state under this provision shall comply with all other | ||
requirements of this Act. | ||
SECTION 22. This Act takes effect September 1, 2015. |